Why the Dow Dropped Today

The market closed out the year on a slightly down note, with all three major indices falling.

Index	Change	Ending Value
Dow Jones Industrial Average (INDEX: ^DJI  )	-69.48 [-0.57%]	12,217.56
S&P 500 (INDEX: ^GSPC  )	-5.42 [-0.43%]	1,257.60
Nasdaq (INDEX: ^IXIC  )	-8.59 [ -0.33%]	2.605.15

Why did the Dow and the rest of the market fall today? There wasn't any market-shaking news, so I'd chalk it up to the normal trading ebb and flow, accentuated by the year-end moves of the market's various investors.

Since it's the end of the year, let's take a step back to review how the market performed over the past 12 months.

The market as a whole was pretty flat. The Dow was up 5.5%. The S&P was almost perfectly flat (-0.002% when you take it out to three decimal places, if you're a stickler). And the Nasdaq was down 1.8%.

So, after 365 days of speculating about the fate of Europe, the U.S. debt downgrade, Congress' ability (or inability) to put aside partisan politics for the greater good, the status of housing and unemployment, and the future of China and Japan, the market ended up pretty much where it began.

The story gets more volatile at the company level.

In the Dow, the three biggest stock price winners were McDonald's [+31%], IBM [+25%], and Pfizer (NYSE: PFE  ) [+24%].

Stretching out to the broader S&P 500, the winners were Cabot Oil & Gas [+101%], El Paso [+93%], and Intuitive Surgical (Nasdaq: ISRG  ) [+80%].  

On the downside, the biggest Dow losers were Bank of America [-58%], Alcoa [-44%], and Hewlett-Packard (NYSE: HPQ  ) [-39%].

For the S&P 500, the biggest losers were First Solar [-74%], Alpha Natural Resources [-66%], and Netflix (Nasdaq: NFLX  ) [-61%].

We clearly see the moderation that comes with diversification as these wildly swinging stocks come together to form a flat market for 2011. It's why I advocate keeping a goodly portion of your portfolio broadly indexed for the long term. Even as I try to separate the individual stock winners and losers, I follow this advice myself.

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